Author Topic: HSA - Logistic Questions  (Read 3453 times)

Awitte58

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HSA - Logistic Questions
« on: October 14, 2015, 06:59:56 AM »
My questions are in bold bold at the bottom if you don't want to read the background story.
This thread is enlightening. Thanks for sharing MDM!
 http://forum.mrmoneymustache.com/taxes/hsa-for-an-adult-child-great-benefit-if-one-qualifies/

I know my mother's work has a plan that qualifies for an HSA. I will be 25 in January and could reap the benefits if she were to change plans.
I explained the whole tax free in and out stuff, but she didn't quite understand so I want to make sure I am explaining it properly.

You contribute tax free and it grows tax free. If you encounter a medical expense (whether that be a broken leg or contact solution) as long as it is on the approved list then you can CHOOSE to get 'reimbursement' for that cost by a withdrawal tax-free from your HSA account.
I then tried to tell her if you do not need to be reimbursed immediately you can let that money sit for X years growing tax-free and THEN reimburse yourself.

She understands the concept. Her response was, "So you have to keep record of those medical expenses for 10 years so you have proof and can get the tax-free withdrawal for reimbursement?!"

This is when I realized that I wasn't sure how that worked.
How does the reimbursement/withdrawal process work for an HSA?
Do you need to turn in a receipt every time to withdraw money?
Do you turn in medical related expenses immediately when they occur and the account keeps track of the amount of money 'freed' up for your reimbursement if you so choose?

rtrnow

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Re: HSA - Logistic Questions
« Reply #1 on: October 14, 2015, 08:01:50 AM »
from your HSA account.

This is when I realized that I wasn't sure how that worked.
How does the reimbursement/withdrawal process work for an HSA?
Do you need to turn in a receipt every time to withdraw money?
Do you turn in medical related expenses immediately when they occur and the account keeps track of the amount of money 'freed' up for your reimbursement if you so choose?


The two HSA accounts I've had put the responsibility of tracking expenses on you. So yes, you will need to keep receipts/track expenses. I personally never use my HSA bc as you correctly point out, I can withdraw that money in 20 years if I want. Most accounts give you a debit card that can be used to withdraw money anyway you choose or you can transfer via the website. I keep a folder with all qualifying receipts. They should really get scanned I suppose. If you end up not needing all the money for medical, an HSA can act like a traditional IRA at age 65. IF your contributions are being taken out of your check pretax, then the HSA is the only truly tax free money.

terran

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Re: HSA - Logistic Questions
« Reply #2 on: October 14, 2015, 08:19:40 AM »
I say drop it. You're on your mom's insurance, presumably at a reduced cost, let her pick the plan. It's entirely possible that while an HSA plan is right for you as a young and healthy person, it might not be right for your mom who may very well have more need for healthcare. If you want to get an HSA plan get out on your own insurance.

MDM

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Re: HSA - Logistic Questions
« Reply #3 on: October 14, 2015, 12:44:30 PM »
I say drop it. You're on your mom's insurance, presumably at a reduced cost, let her pick the plan. It's entirely possible that while an HSA plan is right for you as a young and healthy person, it might not be right for your mom who may very well have more need for healthcare. If you want to get an HSA plan get out on your own insurance.
Absolutely agree that mom needs to do what is best for mom.  But there's nothing wrong with explaining the HDHP/HSA concept to mom, who apparently was unaware of it.  May well be a great deal for both mom and OP.

MDM

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Re: HSA - Logistic Questions
« Reply #4 on: October 14, 2015, 12:49:47 PM »
The two HSA accounts I've had put the responsibility of tracking expenses on you. So yes, you will need to keep receipts/track expenses. I personally never use my HSA bc as you correctly point out, I can withdraw that money in 20 years if I want. Most accounts give you a debit card that can be used to withdraw money anyway you choose or you can transfer via the website. I keep a folder with all qualifying receipts. They should really get scanned I suppose. If you end up not needing all the money for medical, an HSA can act like a traditional IRA at age 65. IF your contributions are being taken out of your check pretax, then the HSA is the only truly tax free money.
+1

It's somewhat analogous to taking charitable deductions: you don't need to provide proof of the donation when you take the tax deduction, but you need to have that proof if the IRS decides to ask you about it.
Similarly, you can withdraw money from your HSA account the same as you would with any brokerage or online bank.  Just have the documentation in case the IRS asks.  Seems a low price to pay for the benefit, but if someone can't stand keeping a file folder....

Jack

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Re: HSA - Logistic Questions
« Reply #5 on: October 14, 2015, 01:05:19 PM »
I suggest scanning the receipts into the computer and keeping them electronically. Not only does it take up less space, but receipts printed on thermal paper fade eventually.

...

Also, this issue gives me a business idea: have an HSA bank that issues a debit card, but have the debit card linked to a non-HSA account (either checking or a credit card account) such that use of the card just makes a record of the charge and then passes it through to the other account. That way the money could stay in the HSA until retirement, but the HSA account itself would keep the records of the expenses. Then the user could just "replay" the charges to withdraw the money.

brooklynguy

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Re: HSA - Logistic Questions
« Reply #6 on: October 14, 2015, 01:20:37 PM »
Also, this issue gives me a business idea: have an HSA bank that issues a debit card, but have the debit card linked to a non-HSA account (either checking or a credit card account) such that use of the card just makes a record of the charge and then passes it through to the other account. That way the money could stay in the HSA until retirement, but the HSA account itself would keep the records of the expenses. Then the user could just "replay" the charges to withdraw the money.

I can't say I quite followed your business idea (how exactly would it obviate the need to independently keep your own records?), but, in any event, I think the intersection between the subset of people who use an HSA in this manner and the subset of people willing to pay for the record keeping service (in the form of higher fees or otherwise) is exactly zero.

Jack

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Re: HSA - Logistic Questions
« Reply #7 on: October 14, 2015, 01:27:39 PM »
I can't say I quite followed your business idea (how exactly would it obviate the need to independently keep your own records?),

The idea would be that you'd outsource the recordkeeping to the HSA administrator. If the IRS asked you for the records, you'd just download a spreadsheet from them (or maybe ask them to provide the records to the IRS on your behalf).

but, in any event, I think the intersection between the subset of people who use an HSA in this manner and the subset of people willing to pay for the record keeping service (in the form of higher fees or otherwise) is exactly zero.

Fair point.

brooklynguy

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Re: HSA - Logistic Questions
« Reply #8 on: October 14, 2015, 01:33:53 PM »
The idea would be that you'd outsource the recordkeeping to the HSA administrator. If the IRS asked you for the records, you'd just download a spreadsheet from them (or maybe ask them to provide the records to the IRS on your behalf).

But I think the records you need to keep to substantiate the qualified status of the medical expenses need to be more substantial than the details contained on a debit card statement (which would only show the merchant, date and amount of each purchase).  So you'd still have to save receipts, etc.

Jack

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Re: HSA - Logistic Questions
« Reply #9 on: October 14, 2015, 02:00:45 PM »
The idea would be that you'd outsource the recordkeeping to the HSA administrator. If the IRS asked you for the records, you'd just download a spreadsheet from them (or maybe ask them to provide the records to the IRS on your behalf).

But I think the records you need to keep to substantiate the qualified status of the medical expenses need to be more substantial than the details contained on a debit card statement (which would only show the merchant, date and amount of each purchase).  So you'd still have to save receipts, etc.

Doesn't that imply that you would have to save your receipts even in the usual case, where you're paying for qualified medical expenses out of the HSA immediately? I thought that kind of verification was already built-in.

brooklynguy

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Re: HSA - Logistic Questions
« Reply #10 on: October 14, 2015, 02:21:53 PM »
I thought that kind of verification was already built-in.

I don't think so.  IRS Publication 969 (regarding HSAs) says:

Quote from: IRS Publication 969
Recordkeeping. You must keep records sufficient to show that:

- The distributions were exclusively to pay or reimburse qualified medical expenses,

- The qualified medical expenses had not been previously paid or reimbursed from another source, and

- The medical expenses had not been taken as an itemized deduction in any year.

Do not send these records with your tax return. Keep them with your tax records.

I'll take a cue from Cathy and point out that IRS publications do not have the force of law, but I think taxpayers would be well-advised to follow the IRS's admonition here and always retain the specified records (whether paying for medical expenses out of the HSA immediately or paying for them out of pocket for reimbursement from the HSA account down the road).